Assume that the insurance company has only claim costs and that administrative c

Question

Assume that the insurance company has only claim costs and that administrative costs are $0. Which of the following statements is correct?

If, with an actuarially fair insurance premium, an individual expected utility of wealth is lower with than without insurance, this individual is risk averse and she will buy insurance.

If, with an actuarially fair insurance premium, an individual expected utility of wealth is the same, with or without insurance, this individual is risk averse and she will buy insurance.

If, with an actuarially fair insurance premium, an individual expected utility of wealth is higher with than without insurance, this individual is risk averse and she will buy insurance.

All of the above.

If, with an actuarially fair insurance premium, an individual expected utility of wealth is lower with than without insurance, this individual is risk averse and she will buy insurance.

If, with an actuarially fair insurance premium, an individual expected utility of wealth is the same, with or without insurance, this individual is risk averse and she will buy insurance.

If, with an actuarially fair insurance premium, an individual expected utility of wealth is higher with than without insurance, this individual is risk averse and she will buy insurance.

All of the above.

Explanation / Answer

Assume that the insurance company has only claim costs and that administrative costs are $0.

If ,with an actuarially fair insurance premium ,an individual expected utility of wealth is lower, with than without insurance ,this individual is risk-asverse and she will buy insurance. This statement is correct.

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